EU/IMF/ECB troika starts Cyrus bailout assessment

POTENTIAL creditors from the IMF, the EU and the ECB have started trawling through Cyprus's finances to assess how much emergency aid the recession-hit euro zone minnow may need after being hammered by exposure to Greece.

POTENTIAL creditors from the IMF, the EU and the ECB have started trawling through Cyprus's finances to assess how much emergency aid the recession-hit euro zone minnow may need after being hammered by exposure to Greece.

Two teams from the trio, collectively known as the 'troika', met separately with the Central Bank and Finance Ministry on Tuesday, officials from both institutions said.

Cyprus sought a financial lifeline from EU rescue funds last week to help support local banks crippled by their losses on Greek bonds.

The total amount Cyprus may require is still unclear, but it faces a virtually guaranteed bill of €2.3bn for its two main banks.

There is speculation the bailout could cost as much as €10bn - more than half the size of Cyprus's €17.3bn euro economy.

Cyprus's finance ministry said the troika would also meet with labour and employer groups and management teams of the largest credit institutions.

"This visit is purely exploratory in nature and there will be no negotiation or discussion of (economic) measures," the ministry said in a statement.

Cypriot authorities say the island's low-tax status, which has attracted thousands of foreign companies, will not be part of negotiations.

But other issues, such as a public payroll representing 33pc of annual state spending and wage indexation blamed for second-round inflationary effects were expected to be in the troika's sights.

In a report last year, the IMF said Cyprus needed to make spending cuts and contain a public sector wage bill which, at 15.4pc of GDP, was the highest in the euro zone, it said. .

Any troika recommendations would be a delicate balancing act because of the potential dangers of enforcing austerity during a recession, economist Fiona Mullen said.

The Cypriot economy, which represents 0.2pc of the euro zone, has recorded negative rates of growth for the past three quarters.

Cyprus is also struggling with record high jobless rates of 10.8 percent.

That was reflected by a 9.5pc jump during 2011 of its "social transfers" bill, which includes unemployment benefits.

"I'm sure that with figures like this government finances are doing worse," Mullen said. "It is therefore important that they come to an agreement with the troika very fast."